You’ve done everything right so far. You filed your taxes on time to avoid late filing penalties. However, instead of breaking even or getting a refund - you find out you owe money to the Canada Revenue Agency (CRA).
Not sure what to do next? Here are 4 tips to help you manage the debt.
Owing income tax happens more often than you’d expect. Basically, it means that you didn’t pay enough Federal income tax during the tax year of 2023 based on your net income. Here are some examples of why it happens: You worked several jobs during the year and probably each employer took the correct amount income tax for one employer. However, when you add all the income together for the year, you probably popped into another tax bracket causing you to owe. If you were self-employed, you were responsible to withhold and remit income tax which maybe you didn’t do. If you surrendered investments like RRSP’s, this is income added to your net income line which sometime causes an amount owing. It’s important to understand why you owed so you can better prepare yourself from it happening again in the future.
If you owe, it won’t magically disappear. Throwing the assessment in a drawer or the garbage will only delay the inevitable. It’s better to face the issue now than trying and avoid it. Ignoring the debt causes interest to accrue, the debt to rise and cause collection calls from CRA. If left long enough, CRA can freeze bank accounts, issue a set-off to redirect funds and apply to the tax debt, seize assets and even garnish wages. Owing taxes causes enough stress and anxiety. Don’t make the situation worse by pretending it’s not a priority.
Sometimes mistakes happen on their end. Reach out to them and ask questions. If you disagree with the fact that you owe, they may suggest you adjust your tax return if it was filed incorrectly. They might also suggest filing a formal objection if you disagree completely with the assessment. If, however, it is correct, make arrangements to pay CRA as soon as possible or establish a payment schedule you can afford. You can also log into your CRA MyAccount online service and click on the payments tab at the top of the page. Pay it off as fast as you can to avoid additional interest which saves you money in the long run.
If the tax debt is unmanageable and you cannot afford repayment, reach out to a Licensed Insolvency Trustee (LIT) in Nova Scotia to discuss legal options such as a consumer proposal or a bankruptcy. A proposal is a legal arrangement to pay the debt, interest free, over a period of time. LIT’s are the only licensed professional body that can negotiate payment arrangements with CRA as they are licensed by the Federal government. Depending on the circumstances, CRA may accept a proposal for less than what is owed. If you do not have the means to make payments, a bankruptcy proceeding could eliminate most CRA debt. As everyone’s circumstance is different, it is best to speak to a local LIT to assess your situation and offer you the best possible debt solution.